The Better Than Cash Alliance is the coming together of a range of stakeholders that are looking at how to promote the digitalization of what are often cash payments today. Clearly, moving from cash to electronic payments leads to an efficiency and a transparency at lower cost, but it also offers a much greater potential outreach to many people at a much lower transaction cost. Payments are often a beginning point for a trajectory of other financial services. And that’s where financial inclusion comes in.
Perhaps what’s most exciting to many of us, who are thinking beyond the payments platform and integrating mobile platforms into today’s banking system, is the opportunity to perhaps have a first contact where a person has the ability to store some value.
It may be a starting point for many people to have what could be the appropriate-for-them type of transaction account.
Electronic payments may free MFIs up to spend more time with people, both [for] understanding their needs and developing the products that address those needs and add value, rather than on carrying and collecting cash. A lot of time is currently wasted on the mechanics.
By the very nature of it, there will be new types and models of partnerships in most countries. But as most governments ultimately expect there to be competition, you’re going to have proprietary systems. When you go back to things like debit cards and credit cards, originally they were proprietary. Today you can use them anywhere. All those networks are incredibly linked to a vast array of bank platforms and clearing systems. So the more we link this, the more governments can make payments or we can make payments and small producers can get paid by all kinds of counterparties, and NGOs can make payments out or receive repayments back. Whether you’re initiating it on a phone or from a bank account or not, the important thing is the interconnectivity.
In terms of uptake, I imagine it’s going to be answered by who’s got the most efficient and effective system for clients, so they [clients] have confidence and go back. For most of us, it’s like going to a website or anywhere where the functionality is poor: we very rarely go back. If you think of the alternative of the old bank payments and check clearing system, all this looks a lot more efficient than what even many, many middle-class people [had] available from their banks for a very long time in these markets.
Once you have more confidence, whether in a bank account or in an electronic form—that it is actually something you can always get when you need it—you may be more apt to store some money there and leave some on the card and take it out as needed, which I think may just help many people to manage spending or using money differently.
Digital transactions and mobile payment systems may be a tool leading to fuller financial inclusion. Yet there’s no silver bullet there. Nobody is pitching it like that, but we do think it’s going to allow governments and NGOs and individuals and businesses to interact a lot more efficiently with each other and much more directly.
And I really think that’s a big difference for small producers in rural areas or buyers of products or anyone receiving a small remittance. What a difference not to have to go through a middle man. And we know in Kenya, people use it now, for example, to pay school fees. They don’t have to send the children with cash to school; they don’t have to hope somebody up-country in their family is really going to use the money for what they sent it for. So I think it’s very empowering for people to be able to just have more control, just as we all do.
What has been very interesting is how quickly technology has been picked up by the poor. In the end, they may be moving faster than you are. And it may be seen as an asset because it may liberate them from some of the processes that our own inefficiencies have resulted in clients having to bear. Our own inability to deliver cash meant they had to go find it. And so I think it’s about how does this become useful in our own institutions, but also for our clients. And the thing is, sometimes microfinance will embrace it very quickly and other times, maybe not. The clients will be the ones who really judge ultimately whether you add value in the process.
Photo 1, Credit: Citigroup
Photo 2, Credit: Safaricom/M-PESA
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Table of Contents
- Executive Summary
- Reaching Fewer
- The Promise of Mobile Technology
- The Psychology of Scarcity
- Developing Appropriate Products
- Conclusion and Recommendations
- Get Your Copy